Downsizing is no answer by itself it must be part of growth strategy

The Outlook

November 19, 1995|By Gary Gately

WORDS TO make employees shudder: restructuring, downsizing, re-engineering. They've become part of the everyday lexicon at hundreds of U.S. companies that have laid off hundreds of thousands in the name of efficiency.

But recently some corporations, consultants and business leaders have questioned the wisdom of large-scale cutbacks. How much is too much? What of survivors and their morale? Productivity, efficiency, corporate image? Have investors and others begun casting a wary eye toward downsizing as a quick fix that detracts from long-term, healthy growth?

Thomas L. Doorley 3rd

Founder, senior partner, Braxton Associates, Deloitte & Touche

Companies get measured very harshly on whether they're creating value for those who have invested in them.

Two things are important: being productive and growing. Unfortunately, companies have worried more over the past decade about the productivity issue than the growth -- how productive are the assets, the people? What's the return on assets and the revenues per person? Investors look at these things.

Cutting back is tangible -- "I cut this number of people." It takes longer to see the fruits of a new product or a strategic alliance or a new avenue for growth.

Collectively, management tends to get seduced by the instant gratification.

You do something, it pays off, the stock price goes up, it feels good. So you don't really think about the long-term.

In a 1995 American Management Association survey, corporations said growth was their top priority.

So finally there's recognition of the importance of growth. But there's not enough done to capture it.

Among employees, every survey we see says that the assumption on the minds of the remaining employees is that the company that did it once will do it again. Therefore, there is a tremendous amount of unease.

In growth companies, employees work hard. They think they're part of something that is moving forward.

Dwight L. Gertz

Co-author, Grow to Be Great, and vice president, Mercer Management Consulting

There's this phenomenon you hear referred to as corporate anorexia -- people are getting skinnier, but they're not getting healthier.

We have a generation of managers who know only downsizing.

The way to create value is to grow, and most businesses have had real trouble figuring out how to do that in the last few years.

You should never start downsizing without doing it in conjunction with a growth strategy.

No company ever shrank to greatness. If it's done all by itself, you just run out of things to cut.

Downsizing is not a strategy; it's a tactic you can use to buy some time. A lot of companies think they can buy temporary relief by downsizing.

A big concern among management these days is how to create shareholder value.

Investors want companies that improved their bottom lines through revenue growth instead of through cost cutting.

In almost any industry at almost any time, you can turn a company into a growth company.

The barriers are mostly internal. The situation is more in management's control than anyone has ever realized.

Eric R. Greenberg

Director, management studies, American Management Association

With the old rules it was very simply, in good times companies hired; in bad times, companies fired. In the mid '80s, that started changing.

When the recovery started after the 1990-91 recession, the re-employment figures looked very, very different from any we had seen in the past.

Eighteen months into a recovery for every recession since World World II, an average of 140 jobs had been re-created after recovery for every 100 jobs cut due to the recession.

After the 1990-91 recession, for every 100 that had been cut during the recession, only 14 had been recovered 18 months later.

Companies that are simply playing a numbers game, that simply want to cut costs, that are just looking for that minimum core of employees that they actually need are not seeing increases in profits and increases in productivity.

Only about half of the companies that cut work forces saw higher profits and only a third see increased productivity.

Companies that increase training when they cut jobs are twice as likely to see higher profits and productivity.

The most predictable after-effect of work force reductions is that morale plummets in the remaining work force.

But re-engineering is being re-engineered. I think what we'll see in the broadest sense is companies asking two questions: Do these employees give us some competitive advantage in the marketplace? Do these people add value to our services?

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